Evolutive and involutive aspects in the plot between diversification of bank loan portfolios, recent techniques of credit risk management and positioning of the bank in a financial conglomerate

This paper examines if and how the traditional banking model of conceiving credit relations, known as “originate to maintain”, can coexist with the more recent “originate to distribute” model. No doubt some credit transfer techniques used by banks on the grounds that they need to reduce the excessive concentration of credit in certain areas, are not actually aimed at remedying this strategic error, but rather at transferring any potential losses deriving from a state of incipient insolvency of debtors. This intentional confusion of objectives is particularly frequent in “financial conglomerates" and is useful to justify sophisticated "tunneling" techniques between banks and other intermediaries of the conglomerate, thanks also to financial instruments whose rating can be altered by visible conflicts of interest. It is very difficult to correct the distortions of this recent model in view of its rational cohabitation with the old model and a more dynamic and efficient process of diversification than the traditional model allows alone.